Investors around the world cut back on their cash reserves in September, but holding still above long-term averages, while a rising share of them took out protection against an equity market reversal amid some sagging optimism about economic growth, according to the monthly poll of fund managers by Bank of America Merrill Lynch, issued yesterday.

The survey showed that the average share of all assets in cash had dipped to 4.8 per cent in September from 4.9 per cent in August, but still above the past 10-year average of 4.5 per cent, implying a level of caution about riskier assets such as stocks.

The survey was carried out from 1 to 7 September among panellists with $629 billion of assets under management in total.

The net share of investors who are bullish on growth fell to a balance of 25 per cent in September , from +62 per cent in January this year. There is actually more hope for improved profits than economic growth, a net 34 per cent seeing hopes for stronger profits.

The biggest “shock” risk, the survey found, was that of military action around North Korea; this risk helps also explain why the survey has seen a fall in exposures to equities of neighbouring Japan, the survey found. The North Korea risk is by some distance the biggest worry; next down the line are worries of a policy mistake by the US Federal Reserve and the European Central Bank.

The survey shows that investors have the most pronounced underweight stance on US equities since November 2007, and the largest overweight/bullish stance on emerging market equities since 2010.
A net 54 per cent of investors surveyed would be most surprised to see a recession in the next six months; net 30 per cent would find an equity bubble to be the least surprising event.